Financial data and markets infrastructure (FDMI) companies provide data, infrastructure, and technology services to the financial industry. This segment of the financial services industry comprises exchange groups and trading venues as well as providers of post-trade and securities services, data and analytics, and financial technology and workflow. It is one of the fastest-growing financial services segments.
The global FDMI industry has had an impressive few years, outperforming the financial services sector as a whole. From January 2019 to December 2023, FDMI delivered a 17 percent CAGR in TSR, compared with 10 percent for financial services.1
Several factors contributed to this performance, including the rise of the buy side as a core customer segment, the continued increase in passive investing, and evergreen demand for data and analytics. These and other tailwinds propelled outsized demand for FDMI solutions, and providers rose to the challenge. Revenues grew at 8 percent CAGR from 2018 to 2023, and M&A activity surged, accounting for an aggregate of $185 billion in deal value during the same period.
However, the future likely holds several sources of disruption. Big Tech is expanding beyond technology and cloud provision, partnering with incumbents to address the core verticals in the value chain. Sell side revenues have continued to decline as a share of overall capital market revenues, and buy side revenue growth is slowing. Nonbank market makers are emerging as a new segment to serve, while private markets have become too large to ignore. Finally, generative AI is enabling a step change in innovation, with client-facing applications such as virtual research assistants going from pilot to rollout within a few months. Combined, these factors are creating an inflection point for the sector.
In this new environment, FDMIs cannot rely on the strategies they used in the past to sustain their rapid growth and TSR. They will need to find new sources of value and change their playbooks to address two things at once: strengthening the core to improve the performance of existing businesses and innovating beyond the core to unlock new adjacencies and value pools.
The FDMI industry
Financial data and markets infrastructure is one of the fastest-growing segments of financial services. Companies in this segment provide data, infrastructure, and technology to the financial services industry. The five main archetypes of provider are exchanges and trading venues, post-trade services, securities services, data and analytics, and financial workflow and technology (see sidebar “FDMI archetypes”).
FDMI activities comprise three primary verticals (see sidebar “FDMI verticals”). Many providers operate in two or more of these. For instance, exchange groups may offer post-trade services and data and analytics alongside their traditional trading businesses.
FDMI has had an excellent five years
Global FDMI revenues have grown at an 8 percent CAGR since 2018 and exceeded $278 billion in 2023. From January 2019 to December 2023, the FDMI segment’s TSR was 17 percent, 70 percent higher than that of the broader financial services sector.
The largest vertical in 2023 was trade execution and post-trade services, which accounts for 42 percent of total FDMI revenues (Exhibit 1). Technology services accounts for 30 percent, and information services 28 percent.
Trade execution and post-trade services experienced 4 percent annual growth over five years ending in 2023, with revenues reaching $117 billion (Exhibit 1). Its largest revenue segment is asset servicing, including custody and fund administration, with $47 billion, which grew by 2 percent a year over the period. The fastest-growing segment in this vertical is post-trade, with 8 percent annual growth to $24 billion, due to higher volumes and regulators’ emphasis on the importance of clearinghouses.
The information services vertical represents a $77 billion revenue pool, with 10 percent annual growth from 2018 to 2023. Democratization of alpha—the increasing accessibility of investment strategies and tools to individual investors—has obliged the buy side to pursue more complex strategies and demand increasingly sophisticated data. Also, the emergence of new asset classes, such as private markets and digital assets, and risk areas, such as cybersecurity, has created new data demands from investors, banks, and others. The emerging-areas segment grew the fastest, at 19 percent per year, over the period.
Technology services, the second-largest FDMI vertical, grew at 11 percent over the period, reaching $84 billion in revenue. RegTech—regulatory technology for monitoring, reporting, and compliance—was the second largest revenue contributor, with $26 billion, driven by cost pressures throughout the industry and rapidly evolving regulatory requirements for technical risk management and cyber resiliency. Heightened complexity in the regulatory environment drove financial institutions to further outsource middle- and back-office functions, benefiting FDMI providers.
Valuations are primarily a result of revenue growth
To explain FDMI’s strong performance, we analyzed shareholder returns for 32 publicly listed FDMI providers. This allowed us to determine the importance of intrinsic value drivers, such as profitability and revenue growth. Our analysis shows that revenue growth was central to shareholder returns. For most types of companies, it has been the most critical driver (Exhibit 2). However, investors also rewarded data and analytics providers as they expanded their business models to include recurring revenue models, such as data subscriptions, and advanced into new growth areas, such as private markets, climate, and cybersecurity. Profitability also was critical to sustain shareholder returns.
Disruptions are creating an inflection point for the sector
Several industry-disrupting trends have emerged in recent years. For example, providers are deepening their presence in areas where they expanded, and M&A is moving to more targeted niche deals. Buy-side growth is slowing, Big Tech is expanding beyond cloud and technology provision, private markets are becoming too large to ignore, and generative AI (gen AI) is accelerating innovation.
Incumbents are expanding and deepening their presence along the value chain
Over the past ten years, FDMI providers have diversified into adjacencies along the value chain. Exchanges, for example, have expanded into pre-trade services to become data aggregators, shifting their revenue from transactions tied to trading volumes and toward subscriptions, such as data licensing, which command higher-valuation multiples. Exchanges are reorganizing their business lines accordingly, leading to more transparent reporting of these revenues. Similarly, financial technology and workflow providers have expanded their coverage along the value chain, moving into settlement and reconciliations.
While expansion along the value chain is expected to continue, providers will likely first look to deepen their reach in areas they have already expanded into. For instance, exchanges may further embed themselves as core providers of data and services to make themselves indispensable, claim a greater share of the value pools, and exploit the full value of their expansions. M&A served as the primary pathway through which FDMI providers diversified over the six years to 2023, with $185 billion in deal value. M&A activity peaked in 2021 and 2022, with $107 billion in deal volume for the two years combined (Exhibit 3).
Since the 2021–22 peak, which included the acquisition of several large FDMI assets, acquirers have focused on integration and realizing the value of their investments. M&A activity is expected to shift from large deals to targeted acquisitions for FDMI providers seeking niche capabilities.
Big Tech is entering the infrastructure landscape
Big Tech companies have entered the FDMI sector over the last few years by partnering with incumbents. FDMI providers use these partnerships as a path to modernizing and operating as digital natives. Big Tech companies partner because they recognize incumbent providers’ deep expertise and track record and FDMI clients’ trust in them. Collaborations are increasingly strategic, combining revenue opportunities with infrastructure and cloud consumption deals. These new market participants are currently partners but may, over time, become competitors.
Fintechs are emerging, and brokers are expanding along the value chain
FDMI fintechs are growing in size and number and, in some cases, becoming acquisition targets for incumbents. Funding in capital market fintechs more than doubled between 2018 and 2022, from $1.3 billion to $2.9 billion. From 2020 to November 2024, there have been 215 deals involving fintechs in FDMI.2
Meanwhile, established brokers managing the interface with end clients are expanding further into the trading value chain. Acquisitions of crypto exchanges by certain brokers and the growth of customer-facing prediction market platforms are a new, longer-term threat to exchanges and venues. Because they manage the client interface, these brokers could acquire or develop the technology to provide integrated trading offerings.
Growth of the buy side customer segment is slowing
Since the 2008 financial crisis, buy side capital market revenue has grown faster than sell side revenue. Between 2015 and 2023, the buy side’s share of revenue increased from 51 percent of total revenue to 60 percent, benefiting from growing assets under management (AUM) and the rise in passive investing. This growth increased demand for the FDMI sector, which responded with buy side-centric solutions.
However, the growth rate of buy side revenue has slowed from 8 percent between 2015 and 2018 to 5 percent from 2018 to 2023 (Exhibit 4). This slowdown is likely to affect FDMI providers, which will need to find new avenues of growth.
Nonbank market makers are becoming an important customer segment
Nonbank market makers, with lower regulatory constraints and unencumbered by legacy technology stacks, are taking share of the dealer market in multiple asset classes. For example, in 2023, the top four nonbank market makers accounted for 48 percent of US off-exchange equity volumes, compared with 12 percent for the top four banks. FDMI providers can look holistically at these fast-growing businesses and the products and services they can customize and offer them.
Private markets are a growth area for FDMI providers
Global private markets AUM has grown at 14 percent CAGR over the past ten years. We expect this trend to continue, driven by increased participation from retail investors across all private markets asset classes, and increased allocations from the institutional segment.
As they grow, private markets are becoming more complex. The introduction of new asset classes and fund strategies and the creation of new structures like special-purpose vehicles are making processes for fundraising, investing, and fund operations more difficult to navigate. Also, multi-asset and multiproduct platforms are becoming the norm as general partners (GPs) seek to broaden their offerings and grow. However, as these platforms grow, GPs must manage the added complexity of product, asset class, and geographic expansion. This leads to support functions becoming a larger share of operations, inducing diseconomies of scale for the largest managers. To address this challenge, GPs are actively exploring outsourcing their middle- and back-office functions to fintech providers with more scalable infrastructures.
Generative AI is accelerating the pace of innovation
FDMIs have led the adoption of AI for several decades, especially for trading algorithms and portfolio insights. Large language models, with their ability to handle unstructured data, will expand the impact of AI for FDMIs, particularly for tasks that were difficult to digitize in the past because of their low process frequency or uniqueness.
New gen AI applications are focused on engineering (for example, coding copilots), corporate use cases such as virtual HR assistants, and select business and compliance use cases, including document summarization. FDMIs are creating value with many applications piloted over the last 12 to 18 months, including the following:
- Several large securities services platforms are modernizing legacy code much more quickly than was possible without gen AI.
- One leading data and analytics provider has developed a private gen AI language model, trained on its proprietary documents, to deliver research and reports to its users, giving them vastly improved access to market insights.
- Another FDMI business has partnered with a Big Tech company to launch a virtual research assistant that supports employees globally by integrating proprietary data, analytics, and research insights.
Gen AI initiatives will likely have a more significant P&L impact as they expand to automate corporate actions, client services, and operations.
We have not found a single dominant use case that would carry a substantial business case. Rather than pursue just one, companies would do better to deploy an internal platform that features the technology, data access, and the required controls and governance to scale many small-to-medium-size gen AI use cases in a regulated FDMI environment.
As the deployment of use cases grows, gen AI will have impacts on work and the workforce. This may require that FDMI providers adapt capacity and acquire new capabilities, such as software engineering, and new skills, such as prompt handling, distributed among more people.
The focus is shifting in the realm of digital assets
Over the last few years, the focus of FDMI providers moved from crypto to the underlying technology of tokenization, the process of issuing a digital representation of an asset on a blockchain. A previous McKinsey report indicates that tokenized market capitalization could reach $2 trillion in 2030, excluding cryptocurrencies.3 With this focus, several FDMI providers are building solutions to enable the tokenization of specific assets. Given the nascency of the technology and the lack of institutional-grade infrastructure, providers need to partner and collaborate to drive progress and encourage adoption.
Positioning for the next phase of growth
In light of these disruptions, FDMI providers should follow a two-pronged approach to sustain their growth and TSR: strengthening the core and investing beyond the core.
Strengthening the core
To improve the operating performance of their existing businesses, FDMI companies should focus on three activities: continuing to build resiliency into their infrastructure, exploring the adoption of a product operating model, and elevating their focus on commercial excellence.
Building resiliency into infrastructure
Technology and operational disruptions at FDMIs pose a systemic risk to the flow of critical financial information and transactions. Because of the interconnectedness of global financial systems, disruptions in one region or infrastructure provider can quickly cascade, affecting markets worldwide and disrupting international trade and banking operations, potentially causing widespread economic instability. Increases in transaction volumes coupled with rapidly shrinking timelines (for example, real-time settlement) have or will put additional stress on architectures at FDMIs. Companies with vulnerable architectures can strengthen them by elevating the role of the office of business resilience and adopting three principles:
- Take a business-backed, end-to-end customer experience lens. Typically, organizations improve resilience by remediating and defining service levels for critical applications and infrastructure in isolation. A better approach is to take a business-backed view to understand customer journeys and solve for end-to-end customer experiences.
- Design for “no trade-offs” and move from reactive to proactive. Build IT solutions without compromising scale, stability, or security. Take a defensive engineering mentality and partition components or resources into separate compartments to limit the impact of failures or overloads in one area on the rest of the system. Anticipate issues to build solutions that are future-proof. Practice techniques such as pre-mortem analysis and war-gaming.
- Create a culture of reliability across the organization. Strengthen automation and reliability engineering capabilities centrally and among infrastructure and application teams. Adopt advanced engineering practices such as service-level indicators and objectives, error budgets, graceful degradation, fault-tolerant patterns, and robust observability to ensure system resilience and full-life-cycle ownership of code.
Adopting a product operating model
Many organizations ask whether a more modern enterprise operating model, one that more closely resembles that of a digital native, is better suited to today’s opportunities and challenges. Among modern operating models, the product operating model is most relevant for institutions that manage operations and technology-intensive businesses at scale and is particularly well suited to FDMIs. The product operating model brings together business, technology, operations, and other relevant functions (such as risk, legal, marketing, and distribution) across the enterprise.
There is no textbook product operating model; every institution that has adopted the model has tailored it to its own strategy, context, and priorities. However, there are three common themes. The first is the creation of “products” with end-to-end accountability for the delivery of client value and a discrete P&L. The second is platforms, which bring together similar technology assets, people, and funding to deliver scale through standardization and reuse. The third is practices that include groups of employees with the same specialization, who are managed together to ensure their professional development with agile ways of working; small, cross-functional pods or teams; quarterly and eventually sprint-based prioritization; a passion for customer and employee experience; an emphasis on fast delivery; and simplified project funding.
The product operating model allows organizations to move with greater speed, efficiency, and simplicity. Leading companies have seen improvements in several performance areas: time to market shrinking up to 70 percent, employee engagement scores rising 20 percent, costs declining 20 percent, and the company becoming a leading destination for top talent.
Elevating the focus on commercial excellence
FDMI providers are often legacy incumbents with entrenched market positions and well-established client relationships. As competition increases within the sector—for instance, from Big Tech and fintechs—it is crucial to have a sales strategy that can manage volume and deliver quality interactions.
To optimize sales coverage, FDMI providers should consider self-serve digital channels and inside sales teams to address standard queries, serve long-tail clients efficiently, and free up capacity for the most valuable accounts. Providers can also serve new customer segments by building inside sales teams comprising junior personnel who operate remotely at half the cost of in-person sales teams.
In addition, FDMI providers should develop comprehensive segment-focused coverage and offerings—for example, by combining lines of business offerings for a defined end segment. This can be an effective way to acquire new clients, deepen relationships with existing clients, and better retain both.
We have seen institutions improve the efficiency of their sales teams by 20 to 30 percent by leveraging AI and gen-AI-enabled automation, giving them more time for client-facing activities. These tools can support account planning, for instance, by retrieving company details, designing sales campaigns, and creating collateral sales materials. In addition, AI can improve the quality of client interactions by providing an overview of publicly stated priorities, customizing experiences, automating repetitive tasks, analyzing customer sentiments, and more.
Investing beyond the core
FDMI providers must simultaneously drive innovation outside the core. There are multiple ways to do this; two of the most promising are to build new ecosystems of services and develop a leading position in private markets.
Building new ecosystems of services
The FDMI industry is modernizing, and the slowdown in the core as a result of ongoing pricing pressure is driving further innovation. For the mid-to-long term, players should explore new asset classes, opportunities in data and analytics, and integration with a wide range of ecosystems. These include upstream integration into users’ workflows, orchestration of end-to-end technology platforms, and creation of services for sectors and asset classes such as commodities and foreign exchange.
Upstream integration allows providers to better assure incoming transactions rather than waiting for upstream users to initiate them. It also makes them more customer-centric, viewing clients individually rather than monolithically and offering tailored client propositions.
FDMI providers are also beginning to play the role of orchestrator to resolve clients’ disjointed legacy platforms, particularly for buy side businesses with multiple service providers and fragmented market infrastructure solutions. FDMI’s end-to-end platforms provide best-in-class open-source technologies that can differentiate and offer seamless plug-and-play service that can provide integration beyond basic safekeeping services. FDMI providers that play the orchestrator role have an appetite for vertical and horizontal expansion in collaboration with partners including data providers, distribution platforms, technology players, and other market infrastructure providers.
FDMI providers can also create interconnected services so users can fulfill various needs in one integrated experience in areas such as commodities, foreign exchange, and real estate. This ecosystem approach is an emerging lever for differentiation; it can avoid commoditization and increase user engagement.
To build these new ecosystems, FDMI players will need to invest in technology that can deliver a wide range of services, seamlessly integrate with client systems, and make their operating model client-centric.
Developing a leading position in private markets
FDMI providers need a strategy to address the fast-growing segment of alternative asset managers. With growing assets under management, these companies have shown an increased appetite for outsourcing parts of their middle- and back-office functions to enable scalable economics. A McKinsey survey of GPs in private equity revealed that the range of AUM for which insourcing these functions is economical is tightly constrained to $8 billion to $10 billion.
To provide the scalable infrastructure needed by these increasingly large funds, FDMI providers could build off their existing capabilities in public markets. For example, they could support GPs in their investment life cycle with workflow, data, and limited-partner reporting, as they have supported the buy side in public markets. They could also facilitate institutional and retail participation in alternatives. Some participants have developed private markets exchanges to liquefy holdings for issuers and improve investor relations.
Leading fintech platforms have also emerged to provide a connection for retail and high-net-worth investors. For instance, accredited investors in the United States can partner with large alternatives managers to co-invest in an asset or company without directly investing in the fund.
Beyond sponsor needs, FDMI providers could also explore how to serve the underlying assets of businesses such as private-equity portfolio companies. As holding periods increase, GPs have a growing influence on the operations of their assets and are looking for new ways to extract value.
The confluence of market trends, technological advancements, and evolving needs has led to an inflection point in the FDMI sector. Also, geopolitical stresses are likely to bring about more volatility in financial assets. There is now a unique opportunity for FDMI providers to grow beyond their core. By building resilience, embracing innovation, expanding into new territories like private markets, and offering new ecosystems of services, FDMI players can not only secure their future but also shape the future of the broader capital markets industry.
